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Is the fastboot.exe in your tools folder or platform-tools folder?
Move the fastboot.exe to platform-tools folder and try again.

I am also doing the same trying to install cynogenmod on my nexus one. I unlocked the phone and trying to flash the image file. it is giving error maessage 'fastboot ' is not recognized as an internal, operable or external command, oerabale programme or batchf file. I already downloaded cynogenmod and google appps and coppied to SD ard. help me over come this problem.